House of Fraser, which lost almost £44m in 2017 due to poor sales, is planning to seek a company voluntary arrangement, or CVA, to reduce rent costs.
Photograph: Bloomberg/Getty Images

High street landlords are gearing up for war with retailers, whom they accuse of railroading them into agreeing to rent cuts via increasingly controversial company voluntary arrangements (CVAs).

Struggling businesses including the department store chain House of Fraser, the children’s retailer Mothercare and the Carluccio’s Italian restaurant chain are all seeking CVAs, where property owners accept lower rents to help a tenant avoid financial collapse.

But they are meeting with growing resistance from major property companies, alarmed by the growing list of CVAs sought this year by chains including Prezzo, Jamie’s Italian, Byron, New Look and Carpetright.

Property companies Legal & General and Westfield are among about a dozen landlords plotting opposition to the imminent CVA by House of Fraser, owned by China’s Sanpower.

They are weighing up plans to make demands in return for their approval, such as detailed financial forecasts, an equity stake in the 169-year old department store chain or a cut of its future profits.

Restructuring experts from consultancies Begbies Traynor and JLL are advising the property companies, who can block the CVA and demand improved terms if more than a quarter of landlords rebel against the company’s proposed terms.

The move by House of Fraser’s landlords is part of a broader seam of discontent in the property industry about the burden placed on landlords by CVAs.

Martin Greenslade, the chief financial officer of Land Securities, the UK’s largest commercial property owner, said CVAs should only be used an emergency option to prevent collapse.

“Where a business has genuine trading difficulties, a CVA can help provide the necessary breathing space to restructure and raise new funds to avoid administration,” he said. “In general, we are happy to support these agreements. Where the operating performance of a business is fine but its ownership structure has excessive debt or management simply wants to improve its operating profits by reducing rents, we do not believe that the CVA process is fair or appropriate.

“For some smaller landlords, the financial impact of a CVA-imposed rent reduction can be very significant. The CVA should not become a management tool to improve profitability at their expense.”

Some retailers have also become frustrated with the CVA system after watching rivals with weaker finances secure lower rents than them. Fashion chain Next is to insert a “CVA clause” into its lease agreements under which its own rents must also be reduced if any of its landlords’ other tenants agree a CVA.

Dan Simms, the head of retail agency at real estate business Colliers, said landlords were often railroaded into agreeing rent cuts because, in many cases, CVAs are voted on not just by landlords but by other creditors who won’t share the pain of rent cuts.

“If you’re all lined up and they say they’re only going to shoot the two on the end, the rest will say ‘fine thank you’,” said Simms. “The more it happens, the more other retailers think they should do it and dump 20% of property liabilities for little cost. It’s an opportunistic bandwagon.”

Simms said rent reductions should be accompanied by other measures to repair a company’s finances, such as debt restructuring and cost cuts, adding that the government would come under pressure to reform the system via legislation.

“Some landlords are grouping together to start to say this is not right and not equitable,” he said. “Resistance and pressure will really be ramping up over the next few weeks.”

Revo, which represents retail property companies, has written to the Commons housing, communities and local government select committee warning of a trend for CVAs.

In a letter to committee chair Clive Betts, Revo blamed financial advisers for recommending that retailers seek CVAs, warning of “grave concerns about the advice being given to parties seeking to enter into such arrangements”.

Betts responded with a promise to look into anything that “could lead to a proliferation of empty shops and a general look of dereliction on high streets up and down the country”.